SoftBank brokering merger of Snapdeal, Flipkart: report
28 March 2017
SoftBank is orchestrating a possible merger between the struggling online marketplace Snapdeal and its bigger ecommerce rival Flipkart, according to an Economic Times report citing people close to the development. The deal, if it materialises, could bring about the most significant consolidation in the cash-hungry Indian ecommerce market.
The Japanese telecom and internet group is likely to invest up to $1.5 billion in the merged entity by picking up primary and secondary shares, giving it around 15-per cent stake in the Flipkart-Snapdeal combine, the report said.
SoftBank, with a little over 30 per cent, is the largest investor in Snapdeal, which was valued at $6.5 billion in 2016.
The deal may include a $1 billion share sale by Flipkart's largest investor, New York-based Tiger Global, along with an infusion of fresh equity by SoftBank, the report cited its sources as saying.
Tiger is expected to sell 10 per cent of its approximately 30 per cent stake in Flipkart. If this secondary deal goes through, it would probably ensure that Tiger recoups the entire capital it has ploughed into Flipkart, and still leave it with a stake of about 20 per cent in the company.
SoftBank is learnt to have drawn up three options for Snapdeal - merge with Flipkart, combine with Alibaba-led Paytm, or a write-down of SoftBank's investment to zero.
"SoftBank and Flipkart have agreed on the broad contours of the deal. If these terms stay on track, it's likely that the talks will culminate into a definitive transaction by late April," a person familiar with the talks was quoted as saying. The discussions, which have been on since February, have picked up in the past fortnight with SoftBank founder Masayoshi Son getting directly involved.
Domestic players like Flipkart are battling deep-pocketed American rival Amazon, which has readied a multi-billion dollar war chest for the country, while China's Alibaba has put its weight behind Paytm's ecommerce business.
The Bengaluru-based Flipkart is being valued at $10-11 billion in its latest financing round, which may raise up to $2.5 billion if the SoftBank transaction goes through. In 2015, when it last raised capital, Flipkart's valuation stood at $15.2 billion
While Flipkart has yet to make its fund-raise official, sources said $900 million of fresh capital has already come in, of which $700 million is from Chinese internet group Tencent while $200 million has been pumped in by Microsoft. The news of Flipkart's fund-raising has dribbled out through multiple media reports in the last few months.
Tiger Global and Snapdeal did not comment on the ongoing deal talks while a Flipkart spokesperson said, "Your information is false and baseless." SoftBank said it does not comment on speculation.